The base rate: past, present and future

The Bank of England (BoE) has just announced that its base rate will remain unchanged for the 26^th consecutive month.

The Bank`s Monetary Policy Committee (MPC) voted to keep the base rate at 0.5% today, despite concerns about the current rate of inflation.

It was widely expected that the base rate would remain at its all-time low of 0.5% today. Just yesterday, in fact, an article in The Telegraph quoted Andrew Goodwin, senior economic advisor to the Ernst & Young ITEM Club, saying that he believes the base rate will remain unchanged for some time still.

He said: "We think it unlikely that the MPC will move before November and it could quite easily be 2021 before we see the first increase in Bank Rate."

Another article in the same newspaper reported that the British Chambers of Commerce and the Institute of Directors (IoD) urged the Bank`s policy makers to keep interest rates at 0.5% - saying that an increase at this stage would `damage economic recovery`.

A historical look at the base rate

Now we know where the base rate stands (and where it will remain for at least another month), let`s take a quick look at where it has been every May throughout the recorded history of the base rate.

Of course, the base rate will have changed at irregular intervals throughout its history - not just in May - but the graph provides a clear view of how the base rate has fluctuated over the past 36 years.

Source: Bank of England official base rate history

What`s next for the base rate?

Well, despite being urged to keep the base rate at its all-time low, the Bank of England will have to increase the rate at some point. It`s difficult to say by how much, and exactly when. but it`s highly likely it will rise in the next 12 months.

As quoted earlier, some experts think this could happen as soon as November, but we may have to wait until 2021 before we see any move from the MPC.

Tags: base rate, Bank of England, MPC, Ernst and Young ITEM Club, Institute of Directors

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